Market News

Should Your Company Move towards Green Fleets?

The fuel industry tends to be seen publicly as a necessary evil. Fuels are dirty, pollute the environment, and make up 26% of U.S. greenhouse gas (GHG) emissions. Fuel companies have a bad reputation, and trucking companies—along with all the other fuel consumers like waste companies, construction, rail, and more—are associated with the negative image because they burn those fuels. At a time when even oil majors like Exxon Mobil are seeking to distance themselves from climate change discussions by supporting carbon tax proposal, it’s more important than ever for businesses to find credible ways of reducing their environmental footprint. Many trucking companies are adopting green fleets as a way to counteract the negative, “dirty” image.

The Benefits of “Green Fleets”

For companies that are directly consumer-facing, a “dirty” image can be disastrous. Hartman Group reported in 2015 that “84% of American consumers report they consider sustainability when making purchase decisions.” Giant consumer brands, such as Walmart, UPS, and FedEx, have adopted alternative fuel vehicles, including renewable diesel, CNG, and electric vehicles, to help improve their brand image.

But sustainability initiatives are not just for consumer brands. Business-to-business brands have also adopted sustainability metrics for several reasons. Some states, such as California, require companies to meet certain emissions standards, while other states offer incentives for installing green technologies. Many companies advertise being green to help recruit young talent who identify with climate concerns. At a time where Millennials are flocking away from truck driving, perhaps working for a “green” fueling fleet could help draw them to the industry.

Going green can also be a differentiator. For construction companies bidding on building projects, being able to advertise alternative fuels or reduced emission can help the company stand out from competitors. The same goes for waste companies, for-hire trucking companies, and many other industries.

Solutions for Green Fleets

Once a fleet has made the decision to pursue green fueling options, they must begin weighing the pros and cons of each way of reducing fleet emissions:

Biofuels

Biofuels such as ethanol and biodiesel are one way that fleets can move towards a “green” image. All diesel fuel contains up to 5% biofuels, while gasoline contains up to 10% ethanol. Blends above this level, though, can be sufficient to advertise cleaner fleets. Biofuels were a popular option when the federal government offered a $1/gal tax credit on biofuels, but without an extension in 2017, they may prove less cost-effective than in the past. Biofuels also bring concerns of fuel quality – biofuels hold much more water than petroleum fuel, leading to corrosion and microbial contamination in bulk tanks and engines.

Renewable Diesel

Similar to biofuels, renewable diesel is a drop-in alternative to fuel that is completely emissions neutral (plants absorb CO2, are converted to fuel, and are burned, releasing the originally absorbed CO2). It does not need to be blended with normal diesel fuel, as it is a drop-in replacement that meets diesel fuel specs. Like biofuels, renewable diesel will be less competitive without the $1/gal tax credit. The product also suffers from supply constraints, and is currently only available in certain geographic areas.

Compressed Natural Gas

From 2012-2014, CNG was viewed as one of the biggest disruptors in the transportation industry. With high oil prices and low natural gas prices, the newer, more expensive engines quickly paid for themselves. Unfortunately for CNG adapters, oil prices collapsed in 2015/16, which has pushed the breakeven for CNG engines to several years. CNG fueling infrastructure, once a booming industry, has also slowed substantially in the face of tepid demand. If fuel prices rise once again, many will flock back to CNG engines.

Electric Vehicles

Electric vehicles, though currently cost-prohibitive, will eventually be a major disruptor to traditional internal combustion engines. With much lower maintenance and energy costs, the technology will quickly overtake traditional trucks. Unfortunately, battery technology has not yet progressed enough to make EVs cost-effective, and the charging infrastructure needed will take time to develop.

Carbon Offsets

Carbon offsets, a simple, often overlooked option, can help companies rapidly meet sustainability goals. This methods invests in projects that reduce CO2 emissions such as reforestation, landfill carbon sequestration, etc. – offsetting the equivalent emissions produced by fuel consumption. As climate change has grown in social importance, investments have substantially reduced the cost of carbon offsets. The benefit of carbon offsets is that they do not require any capital costs or infrastructure changes, and they do not affect the quality of the fuel. The drawback lies in the fact that the ROI comes from “soft” metrics like brand equity, enhanced recruitment, and RFP fulfillment, rather than “hard” numbers like fuel prices and maintenance costs, making them more difficult to measure. Companies who can effectively track marketing, recruitment, and bid success will have an easier time tracking the value of carbon offsets.

Conclusion

Regardless of which method a company chooses after making the decision to move towards green fleets, they will not reap the benefits unless they actively promote their green initiatives. Effective advertising, including press releases, green certificates, and industry awards/recognition, are necessary to help companies get their message to their customers.

[T]here is not one strategy that best fits all businesses. Firms that have a green orientation and can effectively communicate sustainability are likely to achieve greater profitability and better establish a place in the market, as well as benefit from higher levels of employee commitment and increases in overall company performance. Successful green marketing can help promote consumer brand loyalty and perceived brand quality, increase corporate reputation and image, increase revenue and profitability, give corporations a competitive advantage in the market, ensure a balance between development and environmental sustainability, and minimize environmental costs and impacts associated with the company.

Companies that choose to adopt “green fleets” can benefit from consumer trends that will make their brand more appealing in the market place. As business-to-business companies increasingly realize that they must adapt consumer-facing marketing techniques to communicate with the consumers in their customers’ supply departments, green marketing will take on even more importance for non-consumer facing fleets.

Market Condition Report - Disclaimer
The information contained herein is derived from sources believed to be reliable; however, this information is not guaranteed as to its accuracy or completeness. Furthermore, no responsibility is assumed for use of this material and no express or implied warranties or guarantees are made. This material and any view or comment expressed herein are provided for informational purposes only and should not be construed in any way as an inducement or recommendation to buy or sell products, commodity futures or options contracts.